The Silent Report - University of St Andrews

Filename: Silent Report – Tesco

Tesco plc

Silent Social Report 1999-2000

Report collated from information provided in the corporate reports and other documents issued direct from the company.

Tesco plc – Silent Social Report: Mission and Policy Statements

MISSION AND POLICY STATEMENTS The principal activity of the Group is the operation of food stores and associated activities in the UK, Republic of Ireland, France, Hungary, Poland, Czech Republic, Slovakia, South Korea and Thailand. (AR:7)1 Tesco is a successful growth company, and our success derives from simple principles. We work towards one core purpose: to create value for our customers, to earn their lifetime loyalty. This statement continues to be at the centre of all we do. Our two values drive the whole way we do business. ‘No one tries harder than we do for customers’ reflects our obsession with value and service. ‘We treat people the way we like to be treated’ expresses the consideration we give people within and outside the company. (ARev:2)

1 References References prefixed (AR:) refer to page numbers in the Tesco Plc Annual Report and Financial Statements 2000. References prefixed (ARev:) refer to page numbers in the Tesco Plc Annual Review and Summary Financial Statement 2000. Tesco 24.4.01 Press Release 8.2.2000 “Employee Save as you Earn Scheme Matures”, taken from Tesco Press Releases Website 24.4.01.

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Tesco plc – Silent Social Report: Corporate Governance Statement

CORPORATE GOVERNANCE STATEMENT

GROUP BUSINESS PRINCIPLES AND VALUES The Group is committed to high standards of corporate governance. The company has applied the principles set out in Section 1 of the Combined Code on Corporate Governance which have been incorporated in the Listing Rules of the London Stock Exchange. (AR:9) For three of the last four years, Tesco was judged by its peers to be the UK’s most admired company. The judges said, ‘the feeling about Tesco remains that its strategy is crystal clear, well understood by staff and customers’. (ARev:1) Throughout the year ended 26 February 2000 the Group has been in compliance with all the Code Provisions set out in Section 1 of the Combined code on corporate Governance, except as with regard to provision B.1.7. on the length of directors’ service agreements. The Remuneration Committee considers that the current length of two years is both appropriate and necessary although it reviews the matter every year. (AR:11)

BOARD AND COMMITTEE STRUCTURE Board of Directors The Board of Tesco PLC comprises nine Executive Directors and six independent Non-executive Directors. The Board is chaired by Mr J A Gardiner, an independent Non-executive Director, who has primary responsibility for running the Board. The Chief Executive, Mr T P Leahy, has executive responsibilities for the operations, results and strategic development of the Group. Clear divisions of accountability and responsibility both exist and operate effectively for these positions. In addition, Mr G F Pimlott is the senior Non-executive Director. The Board structure ensures no one individual or group dominates the decision-making process. (AR:9) The full Board meets ten times a year and, in addition, annually devotes two days to a conference with senior executives on longer term planning giving consideration both to the opportunities and risks of future strategy. The Board manages overall control of the Group’s affairs by the schedule of matters reserved for its decision. Insofar as corporate governance is concerned, these include the approval of financial statements, major acquisitions and disposals, authority levels for expenditure, treasury policies, risk management policies and succession plans for senior executives. In order that the Board is able to make considered decisions, a written protocol exists and has been communicated to senior managers ensuring that relevant information is presented to all Board members five days before Board meetings. All Directors have access to the services of the Company Secretary and may take independent professional advice at the company’s expense in the furtherance of their duties. (AR:9) The Board delegates day-to-day and business management control to the Executive Committee which comprises the Executive Directors. This meets formally every week and its decisions are communicated throughout the Group on a regular basis. The Executive Committee is responsible for implementing Group policy, the monitoring and performance of the business and reporting to the full Board thereon. (AR:9) The company’s Articles of Association ensure that on a rotational basis Directors resign every three years and, if so desire and being eligible, offer themselves for re-election. (AR:9)

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Board Committees The Executive Committee conducts a risk assessment to the achievement of the Group’s objectives at least annually which is then discussed with the full Board and any appropriate actions taken. Appointments to the Board for both Executive and Non-executive Directors are the responsibility of the Nominations Committee which is chaired by Mr J A Gardiner. (AR:9) The Board has also established a Compliance Committee whose purpose is to ensure that the Board discharges its obligations to avoid civil and criminal liability. The Committee, comprising two Executive Directors and three members of senior management, normally meets four times a year. (AR:9) The Group has an Audit Committee, chaired by Mr J W Melbourn and consisting entirely of Non-executive Directors, which meets a minimum of three times a year. Its terms of reference represent current best practice. The Audit Committee’s primary responsibilities include monitoring internal control throughout the Group, approving the Group’s accounting policies and reviewing the interim and annual financial statements before submission to the Board. (AR:10) List of directors, committee memberships, offices and emoluments: The Directors, together with their committee membership, offices held and emoluments are:

Name Details Other Offices Held Total Emoluments 1999 ***(£000)

John Gardiner Non-executive Chairman (AC,NC,RC)**

Age 63 Non-exec Director since 1988 Non-exec chairman since 1997

Chairman, Laird Group Plc Board member, The Economist

Salary Profit Sharing Benefits Incentive Sch Total 1999 Total

300 - 5 -

305 300

Terry Leahy Chief Executive (NC)

Age 44 Chief exec since 1997 Appointed to Board in 1992

Joined Tesco 1979 and held a number of marketing and commercial positions prior to appointment to the Board


648 8

41 476

1173 901

David Reid, CA Deputy Chairman

Age 53 Deputy Chair since 1996 Appointed to Board in 1985

Appointed Finance director in 1985. Responsibilities include international operations and strategic planning. Non-Exec Director, DeVere Group Plc.


557 8

65 423

1053 836

Rowley Ager Company Secretary (CC)

Age 54 Appointed to Board in 1992

Joined Tesco in 1986, became Company Secretary in 1990. Non-Exec Director, Oasis Stores Plc


379 8

18 293 698 590

Philip Clarke IT & Logistics Director (CC)


Joined Tesco in 1981 and held roles in store operations, commercial and marketing. Appointed Regional Managing Director of Tesco Stores Limited in 1995.


249 6

23 156 434

85 John Gildersleeve Commercial & Trading Director


Non-Exec Director, Gallaher Group Plc Salary Profit Sharing Benefits Incentive Sch Total 1999 Total

504 8

66 386 964 782

Andrew Higginson Finance Director


Non-Exec Director, FirstGroup Plc Member, 100 Group of Finance Directors


378 -

46 220 644 553

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Tim Mason Marketing & E-Commerce Director


Joined Tesco in 1982 Salary Profit Sharing Benefits Incentive Sch Total 1999 Total

381 8

22 269 680 567

David Potts Head of Operations, Northern Ireland & Republic of Ireland


Joined Tesco 1973 and held number of store and Head Office positions


314 8

13 170 505 116

Michael Wemms Retail Director

Age 60 Retail Director since 1992 Appointed to Board in 1989

Joined Tesco in 1972 Non-Exec Director of House of Fraser Plc


422 8

48 323 801 658

Charles Allen Non-Executive Director (AC, NC,RC)

Age 43 Appointed 1989

Chief Executive, Granada Group Plc Salary Profit Sharing Benefits Incentive Sch Total 1999 Total

35 - - -

35 3

John Melbourn, CBE Non-Executive Director (AC,NC,RC)


Deputy chairman, 3i Group Plc Salary Profit Sharing Benefits Incentive Sch Total 1999 Total

38 - - -

38 37

Baroness O’Cathain, OBE Non-Executive Director (NC,RC)


Non-Exec Director, British Airways Plc Non-Exec Director, BNP UK Holdings Ltd Non-Exec Director, South East Water Plc Non-Exec Director, Thistle Hotels Plc Non-Exec Director, W M Baird Plc Non-Exec Director, Allders Plc


33 - 7 -

40 44

Graham Pimlott Non-Executive Director (AC,NC,RC)


Deputy Chairman, Hammerson Plc Salary Profit Sharing Benefits Incentive Sch Total 1999 Total

38 - - -

38 30

Dr Harald Einsman Non-Executive Director (NC)


Non-Exec Director, EMI Group Plc Director, Stora Enso Oyj, part of the Wallenberg Group Director, British American Tobacco Plc


24 - - -

24 -

**Denotes membership of: AC – Audit Committee CC – Compliance Committee NC – Nominations Committee RC – Remuneration Committee Source: Annual Review 2000, p.23 *** Source: Annual Report p.13 Internal Control The Combined Code introduced a requirement upon Directors that they report on the effectiveness of the whole system of internal control, including financial and all other controls together with the risk management process. As permitted by the London Stock Exchange letter of 27 September 1999, the Board has decided to adopt the transitional arrangements in respect of principle D.2 of the Code. As a result, the Board will continue to report on internal financial control in accordance with the guidance to Directors issued by the Rutteman Working Group in December 1994. However, the Directors are of the view that they have established the procedures necessary to implement the requirements of the Combined Code relating to internal control as reflected in the September 1999 guidance ‘Internal Control: Guidance for Directors on the Combined Code’. (AR:10)

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The Board has overall responsibility for the systems of internal financial control. Implementation and maintenance of the internal financial control system is the responsibility of executive management. (AR:10) It should be understood that such systems are designed to provide reasonable but not absolute assurance against material misstatement or loss. (AR:10) The Group has an established framework of internal financial controls, the key features of which are as follows: Organisational structure The responsibilities of the Board ... are designed to ensure effective control over strategic, financial and compliance issues. Financial framework The Group operates a comprehensive system of financial reporting to the Board and senior management, based upon an annual budget and regular forecasts. Weekly and periodic reports of actual results together with key performance indicators are produced. The Group monitors financial performance along with other non-financial objectives through a balanced scorecard approach ensuring overall alignment of goals and objectives. Policies and procedures The Group employs 220,000 people including over 1,500 senior managers. Management control is formalised at all levels and is regulated by cascading limits of authority. Formal policies and procedures also exist for areas that are identified, by their nature, as being significant risk areas. Policies and procedures are regularly subject to compliance audits. Quality and integrity of personnel The Group attaches high importance to the values of trust, honesty and integrity of personnel in responsible positions and operates a policy of recruiting and promoting suitably experienced personnel with clearly defined accountabilities. Investment appraisal The capital investment programme is subject to formalised review procedures with key criteria requiring to be met. All major initiatives require business cases to be prepared, normally covering a minimum period of five years. Post investment appraisals are also carried out. Control monitoring Our external auditors, PricewaterhouseCoopers, contribute an independent perspective on certain aspects of the internal financial control system arising from their audit work and annually report their findings to the Audit Committee. The Group also maintains an internal audit function whose work is focused on areas of perceived high risk, as identified by risk analysis, and who regularly provide reports to the Audit Committee. (AR:10) The Directors are required by the Companies Act 1985 to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and the Group as at the end of the financial year and of the profit or loss for the financial year. (AR:17) The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. (AR:17) Communication with Shareholders The Board attaches a high importance to maintaining good relationships with all shareholders and, primarily through the Investor Relations department, ensures that shareholders are kept informed of significant company developments. During the year, Directors have met with more than 65 of our leading shareholders representing over 45% of the issued shares of the company. While the focus of dialogue is with institutional shareholders to whom regular presentations are made on company direction, care is exercised to ensure that any price-sensitive information is released to all shareholders, institutional and private, at the same time in accordance with London Stock Exchange requirements.

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The Board regards the Annual General Meeting as an opportunity to communicate directly with private investors and actively encourage participative dialogue. The Chairman, Executive Directors and chairpersons of the Audit and Remuneration Committees attend the Annual General Meeting and are available to answer questions from shareholders present. Each year end, every shareholder may choose to receive a full Annual Report and Financial Statements or an abbreviated Annual Review and Summary Financial Statement. At the half year, all shareholders receive an Interim Report. These reports, together with publicly made trading statements, are available on the company’s website (www.tesco.co.uk). (AR:9-10)

REMUNERATION OF DIRECTORS The Board has a long-established Remuneration Committee, composed entirely of Non-executive Directors, now chaired by Mr C L Allen, with effect from 10 April 2000, in succession to Baroness O’Cathain. (AR:9) Directors’ service contracts Executive Directors have service contracts with entitlement to notice of 24 months. This notice period is renewed annually by the Remuneration Committee and is regarded as an essential part of the remuneration package, designed to retain key executives within the company. (AR:13) Non-executive Directors do not have contracts but each appointment is subject to review every three years. Non-executive Directors receive a basic fee plus an additional sum in respect of committee membership. Mr J A Gardiner and Baroness O’Cathain each have the benefit of the use of a company car. (AR:13) Directors’ emoluments Directors’ remuneration policy The remuneration packages, including contract periods, of Executive Directors are determined by the Remuneration Committee (‘the Committee’). It ensures that the remuneration package is appropriate for their responsibilities, taking into consideration the overall financial and business position of the Group, the highly competitive industry of which the Group is part and the importance of recruiting and retaining management of the appropriate calibre. The remuneration of the Non-executive Directors is determined by the Board as a whole on the recommendation of the Executive Committee after considering external market research. (AR:12) The Committee is constituted and operated throughout the period in accordance with the principles outlined in the Stock Exchange Listing Rules derived from Schedule A of the Combined Code. In framing the remuneration policy, full consideration has been given to the best practice provisions set out in Schedule B, annexed to the Listing Rules. Copies of the Executive Directors’ contracts of employment are available for inspection by shareholders as required. (AR:12) Base salary and benefits The base salary, contract periods, benefits (which comprise car benefits, life assurance, disability and health insurance) and other remuneration issues of Executive Directors and other senior executives, are normally reviewed annually by the Committee, having regard to competitive market practice supported by two external, independent surveys. (AR:12) Pensions Executive Directors are members of the Tesco PLC Pension Scheme which provides a pension of up to two-thirds of base salary on retirement, normally at the age of 60, dependent upon service. The scheme also provides for dependants’ pensions and lump sums on death in service. The scheme is a defined benefit pension scheme, which is approved by the Inland Revenue. (AR:13)

http://www.tesco.co.uk)/


Pension details of the directors

Age at 26/2/00

Years of service

Increase 2000 (a)

Transfer Value (b)

Total (c)

Mr T P Leahy 44 21 38 407 229 Mr D E Reid 53 15 34 508 247 Mr R S Ager 54 14 18 274 180 Mr P A Clarke 39 25 4 39 76 Mr J Gildersleeve 55 35 24 379 281 Mr A T Higginson 42 2 14 138 28 Mrs L James 50 15 18 283 82 Mr T J R Mason 42 18 17 166 127 Mr D T Potts 42 27 5 47 96 Mr J M Wemms 60 28 23 240 276

(a) Increase in accrued pension during the year (pounds 000). The increase in accrued pension during

the year excludes any increase for inflation (b) Transfer value of increase during the year (pounds 000) (c) Accrued total pension at 26 February 2000 (pounds 000). The accrued pension is that which would

be paid annually on retirement at 60 based on service to 26 February 2000. Source: AR:14 Directors’ Interests Summary of executive share options and disclosable shareholdings of directors

Options held 27.2.1999

Granted (Exercised)

Options held 26.2.2000

Exercise Price (pence)

Ord Shares 26.2.2000

Mr J A Gardiner - - - - 496,848 Mr T P Leahy 2,419,876 228,901 2,647,777 61.7-173.0 1,527,914 Mr D E Reid 1,690,310 543,747

(763,605) 1,470,452 59.7-179.4 1,689,528

Mr R S Ager 1,143,544 36,994 1,180,538 59.7-178.0 995,063 Mr P A Clarke 436,440 277,170 713,610 98.3-178.0 103,553 Mr J Gildersleeve 1,197,789 73,988 1,271,777 98.3-178.0 1,009,829 Mr A T Higginson 848,641 76,301 924,942 160.3-176.7 179,595 Mrs L James (Retired 30.4.99)

514,386 - 514,386 66.0-178.0 847,948

Mr T J R Mason 951,701 87,861 1,039,562 98.3-178.0 623,396 Mr J W Melbourn - - - - 9,690 Baroness O’Cathain - - - - 46,473 Mr G F Pimlott - - - - 26,724 Mr D T Potts 544,305 199,827 744,132 98.3-178.0 212,503 Mr J M Wemms 1,235,714 (566,603) 669,111 70.0-176.7 983,456

Source: Annual Review 2000:25 Share options Executive Directors are included in an approved executive share option scheme (ESOS), and are eligible to join the employees’ savings-related share option scheme (SAYE) when they have completed one year’s service.Executive options granted since 1995 may be exercised only subject to the achievement of performance criteria related to growth in earnings per share, in accordance with ABI guidelines. (AR:12) Gains made on share options

Number of shares at exercise price (pence)

Value Realisable

61.7 90.3 104.0 Total Price at exercise (pence)

2000 (pounds 000)

1999 (pounds 000)

Mr D E Reid 11,058 194,835 557,712 763,605 181.5 623 - Mr R S Ager - - - - - 386 Mr P A Clarke - - - - - - 153 Mr J Gildersleeve - - - - - - 781 Mrs L James - - - - - - 466 Mr T J R Mason - - - - - - 594 Mr D T Potts - - - - - - 410 Mr J M Wemms - - 566,603 566,603 188.5 479 232

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Source: Annual Report 2000:14 The value realisable from shares acquired on exercise is the difference between the fair market value at exercise and the exercise price of the options, although the shares may have been retained. Where individual Directors exercised options on different dates and sold the shares, the price at exercise shown represents an average of the prices on these dates weighted to the number of options exercised. The market price of the shares at 26 February 2000 was 169p. The share price during the 52 weeks to 26 February 2000 ranged from 156p to 197p. (AR:14)

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Tesco plc – Silent Social Report: Employment Statement

EMPLOYMENT REPORT The average number of employees per week during the year was: UK 169,500 (199 – 164,741), Rest of Europe 24,665 (1999 – 19,497), Asia 11,051 (1999 – 6,133) and the average number of full time equivalents was: UK 108,409 (1999 – 104,772), Rest of Europe 18,573 (1999 – 16,489) and Asia 7,914 (1999 – 5,653). (AR:25) STAFF POLICIES Internal communications are designed to ensure that employees are well informed about the business of the Group. These include a staff magazine called ‘Tesco Today’, videos and staff briefing sessions. Staff attitudes are frequently researched through surveys and store visits, and management seeks to respond positively to the needs of employees. (AR:8) The Tesco team has doubled in size over the past ten years, while generating much higher increases in sales. Through change programmes such as Project Simple, our employees have made over 150 routine jobs more straightforward: from changing prices to receiving goods. They provide the principles and tools for solving a problem. This Tesco Way forms the basis of a new approach to training, based on raising the level of skill and expertise with which our people deliver for our customers. In this context, development goals make sense to the business and staff alike. They form a fair and motivating basis for setting team and individual objectives and rewarding success. This new approach to training is also enabling us to learn faster, make improvements across the Tesco world and incorporate them quickly so we can get them into the hands of our people. World-class capability is also being targeted through our £15m a year investment in developing frontline managers. At any one time, we have over 2,000 trainees world-wide on our Options Schemes for store staff, 500 on our Select Schemes for Section Managers and 130 graduates on our Excel Schemes to develop managers internationally. (ARev:19)

STAFF TRIBUTE The Group depends on the skills and commitment of its employees in order to achieve its objectives. Company staff at every level are encouraged to make their fullest possible contribution to Tesco success. (AR:8)

REMUNERATION POLICY Basic salary and benefits

Employment costs during the year

2000 (pounds million)

1999 (pounds million)

Wages and salaries 1,677 1,558 Social security costs 106 105 Other pension costs 82 73 Total 1,865 1,736

Source: Annual Report 2000:25.

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Annual performance-related payments Profit-sharing The Group operates an approved employee profit-sharing scheme for the benefit of all employees, including Executive Directors, with over two years’ service with the Group at its year end. Shares in the company are allocated to participants in the scheme on a pro rata basis to base salary earned up to Inland Revenue approved limits. (AR:12) Employees’ Emoluments Executive incentive scheme The company operates performance-related award schemes designed to provide a growing element of variable reward to reflect the performance of the Group. The executive incentive scheme introduced in March 1993 was designed and introduced for this purpose. (AR:12) Employee Save As You Earn schemes Over 55,000 Tesco employees shared an estimated £83 million payout in February 2000 as two of the company’s Save As You Earn schemes matured. The staff had invested between £5 and £250 every four week period in the three and five year savings plans. Based on the current Tesco share price, those putting aside the average saving of £26 per period into the five year scheme will receive payouts of over £4,500. Those fortunate enough to have invested their full entitlement of £250 per period will have seen the value of their savings rise to just less than £44,000. (Tesco 24.4.01)

EMPLOYEE SHARE SCHEME Employees are encouraged to become involved in the financial performance of the Group through a variety of schemes, principally the Tesco employee profit-sharing scheme, the savings-related share option scheme and the profit-related pay scheme. (AR:8) Share options Company schemes The company had five principal share option schemes in operation during the year: i The savings-related share option scheme (1981) permits the grant to employees of options

in respect of ordinary shares linked to a building society/bank save-as-you-earn contract for a term of three or five years with contributions from employees of an amount between £5 and £250 per month. Options are capable of being exercised at the end of the three and five year period at a subscription price not less than 80% of the middle market quotation of an ordinary share immediately prior to the date of grant.

ii The executive share option scheme (1984) permitted the grant of options in respect of ordinary shares to selected executives. The scheme expired after ten years on 9 November 1994. Options were generally exercisable between three and ten years from the date of grant at a subscription price determined by the Board but not less than the middle market quotation within the period of 30 days prior to the date of grant. Some options have been granted at a discount of 15% of the standard option price but the option holder may take advantage of that discount only if, in accordance with investor protection ABI guidelines, certain targets related to earnings per share are achieved.

iii The executive share option scheme (1994) was adopted on 17 October 1994. The principal difference between this scheme and the previous scheme is that the exercise of options will normally be conditional upon the achievement of a specified performance target related to the annual percentage growth in earnings per share over any three year period. There will be no discounted options granted under this scheme.

iv The unapproved executive share option scheme (1996) was adopted on 7 June 1996. This scheme was introduced following legislative changes which limited the number of options which could be granted under the previous scheme. As with the previous scheme, the exercise of options will normally be conditional upon the achievement of a specified performance target related to the annual percentage growth in earnings per share over any three year period. There will be no discounted options granted under this scheme.

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v The international executive share option scheme was adopted on 20 May 1994. This scheme permits the grant to selected non-UK executives of options to acquire ordinary shares on substantially the same basis as their UK counterparts. Options are normally exercisable between three and ten years from their grant at a price of not less than the average of the middle market quotations for the ordinary shares as derived from the London Stock Exchange Daily Official List for the three dealing days immediately preceding their grant and will normally be conditional on the achievement of a specified performance target determined by the Remuneration Committee when the options are granted. There will be no discounted options granted under this scheme. (AR:36)

Savings-related share option scheme (1981):

Date of Grant Number of executives

and employees Shares under option

26 Feb 2000 Subscription price (pence)

22 October 1993 5 14,136 53.7 26 October 1994 1,903 5,513,787 61.7 27 October 1995 15,288 32,043,763 83.3 31 October 1996 12,943 30,222,135 83.0 30 October 1997 33,377 43,007,253 121.7 29 October 1998 51,763 63,999,669 136.0 28 October 1999 55,501 49,059,538 151.0

Source: Annual Report 2000:36 International executive share option scheme

Date of Grant Number of executives Shares under option 26 February 2000

Subscription Prices (pence)

7 October 1997 117 1,869,690 151.7 21 May 1998 284 2,775,000 176.7 28 January 1999 359 3,727,500 178.0 24 May 1999 18 520,746 179.4

Source: Annual Report 2000:36-37 Executive share option schemes 1984, 1994 and 1996:

Date of Grant Number of executives Shares under option 26 February 2000

Subscription Prices (pence)

17 May 1991 4 60,000 91.3 29 May 1992 72 2,772,503 92.3 29 October 1992 2 78,663 72.3 27 May 1993 3 184,425 72.3 10 June 1994 137 3,117,726 70.0 12 August 1994 1 471,372 81.0 29 September 1994 9 346,242 77.3 27 April 1995 7 741,954 90.3 13 October 1995 312 7,924,787 104.0 3 July 1996 22 2,624,106 98.3 23 September 1996 593 16,018,351 99.7 17 April 1997 1,012 19,760,589 117.7 7 October 1997 40 4,662,588 151.7 17 November 1997 2 446,373 160.3 21 May 1998 1,287 21,859,618 176.7 30 September 1998 36 1,521,695 164.0 28 January 1999 1,358 22,025,669 178.0 24 May 1999 8 882,044 179.4 9 November 1999 43 2,356,085 184.0 30 November 1999 8 1,098,962 173.0

Long-term share awards for executives Long-term share bonuses are awarded annually, based on improvements in earnings per share, achievement of strategic corporate goals and comparative performance against peer companies including total shareholder return. The maximum long-term bonus is 50% of salary. Shares awarded have to be held for a period of four years, conditional upon continuous service with the company.

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The share equivalent of dividends which would have been paid on the shares is added to the award during the deferral period. Short-term share bonuses are awarded annually, based on improvements in earnings per share and on the achievement of strategic corporate goals. The maximum short-term bonus payable is 25% of salary, which is augmented by up to a further 12.5% of salary if the participants elect for the trustees of the scheme to retain the fully paid ordinary shares awarded for a minimum period of two years, conditional upon continuous service with the company. The share equivalent of dividends which would have been paid on the shares is added to the award during the deferral period. The Committee sets performance targets annually for the incentive scheme for each of the criteria noted above, confirms achievement of performance and awards to be made under the scheme and directs the general administration of the scheme. The Executive Committee has adopted a policy of extending the Group Board executive incentive scheme to a wider body of senior executives within the Group. The scheme rules and awards of this extension are administered on a consistent basis as previously set out for the Executive Directors. The holding period for both the long-term and short-term shares may be extended to seven and five years respectively by the scheme members. During this holding period, the shares held are increased by 12.5% at the beginning of each year based on the scheme shares held. This holding period may be extended only subject to personal share-holding targets set by the Committee being met by the scheme members and conditional upon continuous employment with the company. (AR:12)

PENSIONS The assets of the pension funds established for the benefit of the Group’s employees are held separately from those of the Group. Both the Tesco PLC Pension Scheme and the Tesco PLC Money Purchase Pension Scheme are managed by a trustee company. Its Board comprises one Executive Director, four senior managers and four members appointed from staff and pensioners. Management of the assets of the Tesco PLC Pension Scheme is delegated to a number of independent fund managers. Contributions to the Tesco PLC Money Purchase Pension Scheme are paid into insurance policies administered by the Equitable Life Assurance Society. There has been no self-investment in Tesco shares or property occupied by the Tesco Group. Details of pension commitments are set out in note 26 to the financial statements. (AR:11) NOTE 26 Pension commitments The Group operates a funded defined benefit pension scheme for full-time employees in the UK, the assets of which are held as a segregated fund and administered by trustees. The total cost of the scheme to the Group was £60m (1999 – £55m). An independent actuary, using the projected unit method, carried out the latest actuarial assessment of the scheme at 5 April 1999. The Group also operates a defined contribution pension scheme for part-time employees which was introduced on 6 April 1988. The assets of the scheme are held separately from those of the Group, being invested with an insurance company. The pension cost represents contributions payable by the Group to the insurance company and amounted to £19m (1999 – £17m). (AR:37)

EQUAL OPPORTUNITY The Group’s selection, training, development and promotion policies ensure equal opportunities for all employees regardless of gender, marital status, race, age or disability. All decisions are based on merit. (AR:8)

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WHY TESCO'S BASIC SKILL SCHEME SPELLS GOOD NEWS FOR THE JOBLESS (AND ADDS UP TO GREAT NEWS FOR BRITAIN'S URBAN WASTE LANDS) On the day it was revealed that one in five adults are so poor at reading comes some GREAT NEWS for Britain's disadvantaged. Britain's No 1 food retailer, Tesco, today, Wednesday June 28th, announced that their jobs initiative at the Seacroft, East Leeds family learning centre, has secured employment following training for over 200 unemployed local people many of whom have been out of work for more than two years. (Tesco Press Release Website Wednesday 28.06.2000)

HEALTH & SAFETY The company operates a scheme offering post-retirement healthcare benefits. The cost of providing for these benefits has been accounted for on a basis similar to that used for defined benefit pension schemes. The liability as at 24 February 1996 of £10m, which was determined in accordance with the advice of qualified actuaries, is being spread forward over the service lives of relevant employees and £1m (1999 – £1m) has been charged to the profit and loss account. An amount of £4m (1999 – £3m) is being carried in the balance sheet. It is expected that payments will be tax deductible, at the company’s tax rate, when made. (AR:38)

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Tesco plc – Silent Social Report: Customers and Products Statement

CUSTOMERS AND PRODUCTS REPORT

BUSINESS POLICY A key business priority is to provide First Class Service to the customer. Ongoing training programmes seek to ensure that employees understand the company’s customer service objectives and strive to achieve them. (AR:8) We continue to bring our customers big names at competitive prices, whenever we can. Last year, for example, we sold 14-inch Bush TVs and Vodafone, Orange, One 2 One and Cellnet mobile phones at record low prices. Film and batteries came down by 30% and cuts of between 15% and 50% are being made on stationery, pet accessories, video tapes, CDs and DVDs and many other popular products. (ARev:9)

CUSTOMER CARE AND BUSINESS INTEGRITY

Focus on customers is central to our strategy in the UK. Our customers tell us they want the best value and widest range of food, available in convenient locations and at times when they want to shop. By delivering this, we make sure that our customers continue to choose Tesco in preference to others. (ARev:4) We have devoted a substantial amount of senior management time to the Competition commission inquiry who are now expected to report to the Secretary of State in July 2000. They have already found what our customers know – that prices have fallen in real terms and that there are high levels of consumer satisfaction with supermarkets. (ARev:3) Lowering prices even further is a key part of our UK strategy. In 1999, we invested pounds 380 million in five separate price campaigns, reducing prices on thousands of items, including many of the UK’s biggest brands, by an average of nearly 10%. Shopping at Tesco is becoming continually and permanently cheaper, in real terms, and our typical basket of goods is the best value in Europe. (ARev:5) Convenience shopping should be just that – convenient for our customers. That is why we now have nearly 200 stores trading 24 hours a day and in total, over half our stores are open until 10pm. To improve the shopping experience we aim to offer the best service of any UK business – this year we launched an initiative to offer every customer help at the checkout. (ARev:5)

TESCO REPORT BRITISH MAGAZINE INDUSTRY TO OFFICE OF FAIR TRADING - Current system penalises customers, says Tesco Tesco today is presenting the Office of Fair Trading with a formal complaint detailing how the British magazine industry is failing shoppers in the UK. Attacking the industry for ignoring customers' needs, Tesco Director John Gildersleeve said "It's our job to make sure customers always get what they want. Currently this isn't happening with magazines. Customers are crying out for a new system, but we're being frustrated by efforts to scupper vital progress. So it's now become necessary to involve the Office of Fair Trading." For the last two years Tesco has been developing a cutting-edge new national system, designed to give customers guaranteed access to their favourite magazines. The existing system fails to do this. Launching in October, the new system will see WH Smith News supplying magazines to all 659 Tesco stores in the UK. The new service will also be available to independent small retailers who wish to use it - more details of which will be made available by WHSmith News later this week. (Tesco Press Release Website 2.8.00)

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Tesco plc – Silent Social Report: Customers and Products Statement

INDEPENDENT RESEARCH SHOWS TESCO PRICES DROP BY 5.5% The latest figures from market researchers AC Nielsen show that Tesco is winning the battle against price. The 130 products in the AC Nielsen basket are 5.5 per cent cheaper at Tesco in March 2000 than March 1999. (Tesco Press Release Website 9.5.2000)

TESCO UNVEILS £28 MILLION PRICE CUTS TO SAVE FAMILY FORTUNES The price of frozen food, soft drinks, snacks and chocolate will plummet this summer as Tesco cuts prices by £28 million. (Tesco Press Release Website 8.5.00)

TESCO CLAIMS VISTORY AS PRICE OF RED BULL PLUMMETS Tesco has today achieved a major victory in the campaign to lower prices in the UK on behalf of customers. Manufacturers of trendy energy drink Red Bull have agreed to slash prices- after Tesco protested when they found that cans of the energy drink were sold to supermarkets in Europe for 15% less. (Tesco Press Release Website 13.3.00)

TESCO vs LEVI The main battle of the clash between Tesco and Levi Strauss starts on Friday in Europe. Tesco is fighting for the right to import customers' favourite branded products from around the world - and sell them for less in the UK without being threatened with legal action by brands such as Levi's. (Tesco Press Release Website 3.3.00)

FREE CASH AT TESCO Tesco announced today that 74 Barclays ATMs will be removed from its stores in the latest move to give customers free cash at Tesco. It is also working to double the £50 cashback limit at the tills. Tesco is committed to providing customers with free access to their cash. Therefore we will be removing 74 Barclays ATM machines over the next 12 months and replacing them with Tesco Personal Finance ATMs. (Tesco Press Release Website 19.4.2000)

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Tesco plc – Silent Social Report: Community Statement

COMMUNITY REPORT

COMMUNITY POLICY Number one locally means putting local people first in the way we run our business, support our communities and protect the environment. This is part of our environmental and social responsibility strategy aiming to meet the principles of sustainable development. Last year we launched six local partnerships throughout the UK to build stores in regeneration areas, creating 2,000 new jobs. We are working with partners to prepare the unemployed for work and to provide them with transport and childcare initiatives. (ARev:20)

CORPORATE CITIZENSHIP Supplier payment policy Tesco PLC is a signatory to the CBI Code of Prompt Payment. Copies of the Code may be obtained from the CBI, Centre Point, 103 New Oxford Street, London WC1A 1DU. Payment terms and conditions are agreed with suppliers in advance. Tesco PLC has no trade creditors in its balance sheet. The Group pays its creditors on a timely basis which varies according to the type of product and territory in which the suppliers operate. (AR:8)

TESCO TO PROVIDE INTERNET FOR ALL TESCO is to open internet cafes in its stores in its campaign to spread the IT revolution to everybody in the community. Ten pilot internet cafes will be set up in stores across the country, including some economic regeneration areas. Customers at present without computer skills, who would otherwise be excluded from the revolution, will be put on line. Tesco is also looking at ways in which customers without any computer skills can be given basic - or, indeed, more advanced training. (Tesco Press Release Website 9.6.2000)

RESPONSIBLE FINANCING Nothing reported.

PHILANTHROPY, SPONSORSHIP AND EDUCATION Over 16,000 schools and 115,000 pupils created 40,000 web pages for Tesco SchoolNet 2000 which is showcased in the Millennium Dome, Greenwich. This electronic ‘Domesday Book’ for the 21st century involved children, as part of their school work, investigating life in their local communities. The project is continuing this year. Meanwhile, our Tesco Computers for Schools programme is now in its ninth year. Last year, over 20,000 schools received £10.5m-worth of computer equipment. We raised £1.1m for our charity of the year, NCH Action for Children. The charity for 2000 is Macmillan Cancer Relief, who support people living with cancer across the UK. We also allocate money to every store, in the UK and internationally, to support local projects of their own choice.(ARev:20) Contributions to community projects and to charity amounted to £1,485,000 (1999 – £1,301,000). (AR:8)

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Tesco plc – Silent Social Report: Community Statement

ETHICS

Nothing reported.

POLITICAL DONATIONS There were no political donations. (AR:8)

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Tesco plc – Silent Social Report: Environmental Statement

ENVIRONMENTAL REPORT

ENVIRONMENTAL POLICY Our environment programme manages resources efficiently and reduces our impact on the environment through performance monitoring and risk management. (ARev:20)

SUPPLIERS Our environment programme includes ... encouraging our suppliers to follow best practice and use resources responsibly. (ARev:20)

CUSTOMERS Our environment programme includes ... providing customer recycling facilities at 350 stores (ARev:20)

RESOURCE CONSERVATION Our environmental programme includes ... saving 70,000 tonnes of packaging by using reusable trays for fresh and chilled items, (and also) recycling 180,000 tonnes of cardboard and 10,000 tonnes of plastic annually. (ARev:20)

SUSTAINABILITY Our environmental programme includes ... building 85% of our new UK stores on brownfield sites. (ARev:20)

ENERGY Building for the future is our programme for the way we build, fit-out and operate our stores so that they are cheaper to build, more economic to run and environmentally sensitive. (ARev:7) Our environmental programme includes ... improving the energy efficiency of our stores by 9.5% per square metre. (ARev:20)

GLOBAL ENVIRONMENT Our environmental programme includes ...removing GMOs wherever possible from our own products, (and) cutting lorry miles by three million and so reducing their carbon dioxide emissions by 40%. (ARev:20)

AWARDS

Nothing reported

ANIMAL WELFARE REPORT Nothing reported.

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The Silent Report - University of St Andrews

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